廣告

2008年1月27日 星期日

Société Générale is one of the oldest banks in France. The original name was Société Générale pour favoriser le développement du commerce et de l'industrie en France (English: General Company for the Support of the Development of Commerce and Industry in France). Société Générale is often nicknamed SocGen in the international financial world.

Société Générale wants to be top brass in the French banking industry. The bank (familiarly known as SocGen) commands a three-pronged campaign with operations in global investment management (including SG Private Banking and majority-owned online brokerage Boursorama); retail banking and specialized financial services, including finance, leasing, and insurance; and corporate and investment banking, focusing on European capital markets, derivatives, and structured finance. In the US, the company controls asset manager The TCW Group. (SocGen spun off investment bank Cowen Group in 2006.) SocGen has nearly 3,000 branches in France (including its Crédit du Nord division), and some 5,300 locations worldwide.

French Bank Offers Details of Big Loss

PARIS — The French bank Société Générale, facing persistent questions over how one junior trader could have caused more than $7 billion in losses, acknowledged Sunday that his activities prompted questions from risk managers several times last year, but that the bank never began a wider investigation because his explanations defused any suspicions.

The new details came as the trader, Jérôme Kerviel, 31, spent a second day in police custody, facing questions about what Société Générale asserted was an elaborate, yearlong ruse that involved betting billions of dollars of the bank’s money on European stock index futures.

Mr. Kerviel’s lawyers denounced Sunday the “media lynching” of their client in recent days and argued that Société Générale “brought the loss on themselves.”

In a five-page statement, the bank outlined how it believed Mr. Kerviel combined several different “fraudulent methods” to hide his activity, including using computer access codes of other employees and falsifying documents.

Jean-Pierre Mustier, chief executive of the bank’s corporate and investment banking arm, said in a conference call with reporters that the discovery of the $7.2 billion fraud, on Jan. 18, and the unwinding last week of nearly $75 billion worth of risky investments represented “one of the most difficult periods in the history of Société Générale.”

Mr. Mustier also repeated the bank’s assertion that Mr. Kerviel appeared to have acted alone.

“We have made extensive checks of his portfolio as well as the portfolios of others to see if there was anything like the types of transactions he was using,” Mr. Mustier said. “It seems extremely unlikely” that he had acted with the help of others.

Still, he said, “I cannot guarantee to you 100 percent that there was no complicity.”

Mr. Mustier explained that Mr. Kerviel’s role on the trading desk was that of an arbitrager, which meant that he was entrusted to buy one portfolio of stock index futures and at the same time sell a similar mix of index futures, but with a slightly different value. The object of arbitrage is to try to make a profit from these differences in value. Because the value gaps between similar financial instruments are usually very small and temporary, this type of activity typically involves trading in very high total nominal amounts.

arbitrage 【商】套利 ━━ n. 【商業】さやとり（売買）.

Mr. Kerviel’s fraud, according to the bank, consisted of placing sizable, real purchases in one portfolio but creating fictitious sales transactions in the second, off-setting portfolio. This gave the impression to risk managers that the risks in the first portfolio were hedged, when in fact they were not. As a result, the bank wound up exposed to huge one-way bets, or “long” positions. Instead of hedging, which was his job, Mr. Kerviel was effectively speculating with the bank’s money.

Mr. Mustier said a review of Mr. Kerviel’s trading records showed that he first began creating the fictitious trades in late 2006 and early 2007, but that these transactions were relatively small. The fake trading increased in frequency, and in size, during the course of the year, he said, but the largest fictitious trades involving futures contracts on the Dow Jones Euro Stoxx 50, the DAX index in Germany and the FTSE 100 index in Britain were entered in early January.

“Our controls identified from time to time problems with this trader’s portfolio,” Mr. Mustier said, although he declined to say when the first questions were raised by risk managers, saying that the bank’s auditors were still investigating.

Each time one of Mr. Kerviel’s trades was questioned, Mr. Mustier said, Mr. Kerviel would describe it as a “mistake” and cancel the trade.

“But in fact, he then replaced that trade with another transaction using a different instrument” to avoid detection, Mr. Mustier said.

Mr. Mustier also said Mr. Kerviel’s fake trades did not fall into an identifiable pattern.

“He had a lot of various transactions that he would use,” Mr. Mustier said. “I don’t think there was ever an exact repeat” of a trade.

In its statement, Société Générale also sought to dismiss speculation that the unwinding of Mr. Kerviel’s trades contributed greatly to the sharp decline in global stock markets early last week.

The bank said it undid its position over the course of three days, from Jan. 21 through Jan. 23. On each of those days, Société Générale’s share of the total trading volume did not exceed about 8 percent for the contracts in question.

In comparison, Mr. Mustier saidm Société Générale’s normal share of daily trading volume in those futures was 2 percent to 4 percent, although in the cash market the bank’s trading frequently represented up to 10 percent of the daily volume.

“In other futures markets where we did not intervene, we have seen performance that was not very different from the performance we saw on the Euro Stoxx, DAX and FTSE,” Mr. Mustier said. “That shows that our market impact was limited.”

Mr. Kerviel turned himself in to the police Saturday afternoon. French investigators spent the weekend questioning him and poring over documents and computer files seized from Mr. Kerviel’s residence and from the bank offices where he had worked.

On Sunday, his lawyers, Elisabeth Meyer and Christian Charrière-Bournazel, accused the bank management of wanting to “raise a smoke screen to divert public attention from far more substantial losses in the last few months,” notably in the area of subprime American mortgage investments.

The lawyers criticized Daniel Bouton, Société Générale’s chief executive, saying he had published a public letter, under the pretext of reassuring shareholders, that accused Mr. Kerviel of fraud. On the contrary, they argued Kerviel actually made the bank a profit of more than $2 billion as of Dec. 31.

Laura Schalk, a Société Générale spokeswoman, declined to comment on the contentions by Mr. Kerviel’s lawyers.

On Sunday, the head of the financial section of the Paris prosecutor’s office, Jean-Michel Aldebert, said the questioning of Mr. Kerviel had been “extremely fruitful” so far.

Mr. Aldebert declined to give details of what Mr. Kerviel had disclosed, other than to say the trader had addressed “the operations that Société Générale described as fictitious.” He said Mr. Kerviel was explaining “what had happened in very interesting ways.”

Mr. Aldebert added that Mr. Kerviel’s state of mind seemed stable. “According to what he told me, he’s doing fine,” he said.

Société Générale executives had previously described Mr. Kerviel as a “fragile being” who had recently faced “family problems.”

Mr. Aldebert said the prosecutor’s office had decided to hold Mr. Kerviel until Monday morning. He then is expected to be interviewed by a judge.

There was an unusual amount of activity at the financial police headquarters for a Sunday, with police cars coming and going, some with sirens blaring. There are bars on the fourth floor, on the left hand side, on windows of the 10-story building where Mr. Kerviel was being interrogated.

Michel Histel, 62, a retiree who lives nearby and who, like many French people, has been avidly following the story, described the scene as “very exceptional.”

“What’s so surprising about this to me is that they brought this young man so quickly to the financial police headquarters,” Mr. Histel said.

“What is a little bit revolting to me is that people are attacking this young man. But this bank has been playing with fire for a long time,” Mr. Histel said, referring to Société Générale’s leadership in financial derivatives products.

2008年1月24日 星期四

In Greece it’s the poor who are currently making headlines.Anti poverty campaigners there are calling for the establishment of a special supermarket chain to donate food free of charge to the under privileged. The concept began in France, then spread to Belgium and Spain and has now reached Athens, from where Malcolm Brabant reports.

2008年1月15日 星期二

敬禮 了不起

Mapping Polluters, Encouraging Protectors

Published:

January 14, 2008

Author:

Martha Lagace

Executive Summary:

Where are the biggest polluters? And what is your company doing to protect the environment? A new Web site—both a public service and a research tool—posts managers' data in real time, allowing a balanced view of industrial environmental performance. HBS professor Michael W. Toffel and senior research fellow Andrew A. King explain. Key concepts include:

The Web project was started to get around an information bottleneck.

Users of MapEcos can easily find detailed information on the environmental performance of facilities across the United States.

Managers can monitor peer companies' environmental information as well as disclose information about their own facilities.

The scholars use the site to examine what industrial facilities do and what the public at large is concerned about.

About Faculty in this Article:

Michael Toffel is an assistant professor in the Technology and Operations Management unit at Harvard Business School.

About Faculty in this Article:

Citizens, industrial polluters, and scholars do not usually see eye to eye—but that may change with a new Web site that monitors corporate environmental performance in the United States.

According to the university professors who created it, MapEcos (mapecos.org) is a breakthrough for visualizing and interpreting data about industrial environment performance because it brings together information about companies' environmental management, provided voluntarily by managers in real time, with companies' pollution data from the U.S. Environmental Protection Agency.

"MapEcos itself is a public service, because it makes this data, most of which exist in archival databases of the EPA, much more readily accessible," says Michael Toffel, an expert on industry self-regulation and an assistant professor in the Technology and Operations Management unit at Harvard Business School.

You don't need to be "green" to see the value of such an endeavor. What makes MapEcos attractive for managers in any industry is the opportunity to watch peer companies—and in some cases, subsidiaries of their own companies—provide environmental information on the map and easily disclose information themselves.

Besides managers, the site's creators hope MapEcos will grab the attention of members of the public, including environmental activists. Users can track factories' pollution activity over time, compare factories in their community, and compare the pollution of local factories to others in their industry across the country—but just as important, monitor what mitigating steps facility managers are taking.

Toffel and his colleagues also developed MapEcos as a mechanism to support their academic research. "Often public impact conflicts with scholarship and vice versa," says Toffel. "We decided to bridge this impasse by creating the experiment inherent in MapEcos, providing a diverse group of companies the opportunity to disclose their environmental management efforts. The map provides both the stimulus and the public good, and we can remain completely impartial."

Toffel planned and stewards the site with colleagues whose research is similarly devoted to issues surrounding business and the environment: Andrew King, an associate professor at Dartmouth's Tuck School and currently a Marvin Bower Fellow at Harvard Business School, and Michael Lenox, an associate professor at the Fuqua School and faculty director of Duke University's Corporate Sustainability Initiative. They received essential technical expertise from student programmers who were fascinated by environmental issues, technologically talented—and tireless. "It was a huge amount of work," King recalls with a grin. The name MapEcos emphasizes an attempt to integrate information that is relevant to both ecology and economics.

A niche to fill

The observation that led to the site's founding is a common one that vexes businesspeople as well as scholars concerned with markets: information bottlenecks. "On many of the projects that I've been involved in, it seemed that a major flaw was that information wasn't getting to the people who needed to make decisions," says King. "All 3 of us are interested in the concept of voluntary activities that firms do as alternatives to regulation—one of which is the voluntary disclosure of information. That is perhaps the critical issue, I think, for environmental performance.

"We needed a way of getting information about unobserved environmental attributes and getting that information credibly," he continues. "And so a Web project seemed like a great opportunity for us to explore that process."

The researchers decided to join forces in early 2007 while attending the Institutional Foundations for Industry Self-Regulation Conference they organized for researchers and policymakers. By December, the site launched.

Research matters

According to Toffel, 2 research projects are associated with the map: looking at what facilities do, and what the public at large is concerned about.

For the first project, the researchers sent a survey to as many of the facilities on the map as possible based on the availability of e-mail addresses in the EPA database, and asked them to describe their environmental management activities, environmental awards, and the "ecolabels" their products use. (An ecolabel is meant to denote that a product is particularly "green.")

"From a research point of view, we want to get a better understanding of why some firms are more transparent than others about their environmental practices and performance," Toffel explains.

In the second project, the researchers hope that usage patterns on MapEcos will provide insight into the dynamics of stakeholder interest. For instance, which companies and industries attract more attention from stakeholders? Which communities are particularly interested in the environmental performance and activities of local companies?

Taking action

On the site, users, whether company executives or private citizens, can view detailed environmental performance information on facilities across the United States. Each facility on the map is color-coded according to emission level (blue is low, red is high; a green ring indicates that a company disclosed some information about its environmental management activities by responding to the researchers' survey). In their survey responses, managers can outline what their companies are doing about environmental protection and community engagement, and see their responses posted in real time. Companies are aware that by responding their data may be analyzed.

Other stakeholders can view the entire United States, or focus on data about particular geographic regions.

"We want to get a better understanding of why some firms are more transparent than others about their environmental practices and performance." —Michael Toffel

With the entire United States on view, where are the most flagrant polluters? Well, the United States has a lot of red dots. Toffel mentions that power plants and metal mines are the 2 industries with the greatest amount of toxic pollution, and that counties with the largest emissions in the country are in Utah, Ohio, Tennessee, Kentucky, West Virginia, and Texas.

Users can search on variables such as emission level or health hazard level, rated from 0 to 9, with 9 being worst. By typing in 7, 8, or 9, they can see highest polluters indicated all across the map, either by raw sum of pounds of toxic chemical emissions or by pounds weighted by human toxicity. According to King, emissions in the United States are highly skewed: Several make the lion's share of emissions while a great number make relatively few.

"Knowing that some factories have vast emissions really puts the situation in perspective," says King. "It makes you wonder whether all the attention that gets paid to a local dry cleaner is worth it. Now of course, there are other factors that weigh in: for instance, whether a dry cleaner is in a highly populated area."

Geospatial research on business and the environment is still in its infancy, Toffel concurs. From a public health perspective, it would be quite useful to map, for instance, how individuals are exposed to pollutants based on where they live: Living upwind or downwind from a smokestack, at the same distance, can carry dramatically different health implications, and mapping this difference could help easily communicate this to a variety of stakeholders.

A number of countries already require a subset of their regulated community to report information on their own environmental performance. "Wherever such data exists, this map can expand," says King. The MapEcos researchers would like to add Canada and Mexico to the site, and possibly build a portal for countries that do not currently have voluntary reporting by firms. King suggests that for such a non-U.S. site, citizens could report information about the companies in their communities, and the companies themselves could be asked to report information, creating a virtual, transparent mechanism for stakeholder engagement. Such projects would be difficult but worthwhile.

According to the scholars, the array of research possibilities is immense and ever growing. As environment sciences continue to rapidly develop, mapping can bring together specialists in fields as diverse as environmental engineering and graphics. As Toffel concludes, "The notion of how to display environmental information geographically is something that people are getting very excited about, because while the world faces some serious global environmental problems like climate change, a great deal of pollution and many environmental impacts are local."

Stated Missions, Flexible Standards

It is important to understand that application of AACSB’s 21 accreditation standards are based on the stated mission of each institution. While standards must be met, they are flexible enough so that they can be applied to a wide variety of business schools in many locations with different missions. It takes between three and five years for a school to go through the entire accreditation process. Delivery method of programs has nothing to do with a school's ability to earn AACSB accreditation. AACSB's mission-based accreditation allows for a wide variety of business schools to earn accreditation, including many institutions that offer online and other distance learning programs, as well as the more conventional on-campus programs.

Taiwan opposition win bears close watching

The Yomiuri Shimbun

In Taiwan's Legislative Yuan election, considered a prelude to a presidential election scheduled for March, the largest opposition Nationalist Party won 81 seats, more than two-thirds of the 113-seat national assembly, in a landslide victory. The ruling Democratic Progressive Party won just 27 seats, far short of its self-claimed victory mark of 45.

It was a far more severe than expected rebuke for the administration of incumbent two-term President Chen Shui-bian, who has served for nearly eight years. We wonder what effects the election results will have on the future of Taiwan and the situation in East Asia, where China-Taiwan relations play a vital role.

As such developments affect the area's security and economic matters, Japan needs to keep a close eye on the situation as it progresses.

The main pattern in Taiwan's elections has been such that Nationalists have been campaigning for reconciliation with China, while the pro-independence DPP has been expanding its strength based on the rising "Taiwanese consciousness."

In the latest election, the Nationalist Party, or Kuomintang, not only criticized the DPP's China policy which has been in a stalemate due to its mostly confrontational tactics but also attacked a series of corruption scandals involving those around Chen and failures in economic policy. As a result, the Nationalists succeeded in mobilizing people's dissatisfaction with the current administration to achieve the landslide victory.

===

Successful campaign strategy

The Nationalist Party also formed a united front with other opposition parties, including the No. 2 opposition People First Party. Also, the party's characteristic organizational power was fully utilized to great success.

The DPP's campaign was spearheaded by party leader Chen himself, who appealed to the public, saying unification with China would be the only option if the Nationalists won an overwhelming majority. However, the public was not receptive to his appeal.

Now the Nationalist Party is one step away from reclaiming power after eight years in opposition. The party's victory was so impressive that even its senior members were surprised by the result.

Even so, we doubt this major victory will be reflected in the presidential election.

In Taiwan, a pendulum effect has been observed for years as the victorious party switches from election to election.

The Nationalist Party took about 51 percent of the proportional representation votes this time, while the DPP took about 37 percent. The difference is smaller than that in the number of seats both parties garnered overall. The figures from the proportional representation votes are considered similar to the popularity ratings of the parties.

===

Can DPP recover?

The key to victory in the presidential election for the DPP is how much momentum the party can regain under the leadership of former Premier Hsieh Chang-ting, the party's presidential candidate, with party members and supporters' sense of crisis as leverage.

However, even if the DPP manages to maintain its hold on the presidency with a come-from-behind victory by Hsieh, its handling of the government will be unsure in the face of opposition control of the legislature.

The Nationalist Party now has the right to propose a motion to remove the president as it obtained more than two-thirds of the legislative seats. If the party succeeds in winning the support of independents and controlling more than three-fourths of the seats, it would be possible to change the Constitution.

If Ma Ying-jeou, the Nationalists' presidential candidate and former party leader, wins the presidential race, the ruling party will totally dominate the administration, bringing back memories of the era when Taiwan was ruled by a Nationalist Party dictatorship.

At the time of the presidential election, a referendum also will be held on whether the island should join the United Nations as Taiwan, an idea espoused by Chen. China has heightened its readiness against Taiwan as it sees the move as a step toward independence. As the United States and France also oppose the idea, the issue is gaining international attention.

Japan declared it may not support the move if it changes the status quo in the relations between China and Taiwan. Given this, Japan should persuade Taiwan not to damage the area's stability.

華盛頓郵報 12日社論

Passenger Rights

The airline industry is trying to beat back a New York law that wouldn't be necessary if it treated fliers with dignity.

AIRLINE PASSENGERS going through New York now have something other put-upon travelers around the country don't have: a bill of rights. The airline industry wants to kill this first-in-the-nation law. It has only itself to blame for being in this position.

The New York law sprang from the horrendous events of last Valentine's Day. That's when a freak ice storm wreaked havoc on New York-area airports, and some passengers were trapped on airplanes for up to 10 hours with no water, food or working bathrooms. Airlines canceled flights by the hundreds and stranded thousands of people. What made matters worse was the lack of information from the carriers.

Congress was indignant and promised action that has yet to come. Just before Thanksgiving, the White House called on the airlines "to adopt legally binding contingency plans for lengthy tarmac delays." JetBlue, which failed miserably on that frosty February day, and some other airlines have done so. But not all of them have. Enter the Empire State.

If a flight is delayed three hours or more at John F. Kennedy or LaGuardia airports, the law requires the airlines to make fresh air, lights, functioning restrooms and "adequate food and drinking water" available. The law creates an airline consumer advocate office, which would investigate complaints. The state attorney general can slap the airlines with a penalty of up to $1,000 for every violation verified by the new watchdog. The Air Transport Association, whose membership hauls 90 percent of the passenger and cargo traffic in the country, has sued, arguing -- not illogically -- that airline regulation is a federal job.

The airlines find themselves facing regulation because they have not lived up to their promises to hold themselves accountable. Flight delays last year were the worst since records started being kept in 1995. The numbers of lost, damaged, stolen or delayed bags were at record levels also. Complaints from the public were up almost 40 percent between November 2006 and November 2007. Government micromanagement of airline operations is far from ideal. But it's hard to drum up much sympathy for the industry.

2008年1月12日 星期六

1/10/08How to build an organization in which executives will flourish.

Illustration by Dan Page

The challenge of leadership is not what it used to be. For the past few decades — at least since the genre-defining book Leadership by historian James MacGregor Burns was published in 1978 — writers on business and society have understood that the quality of a leader’s character makes all the difference. Burns, for example, wrote that civilization depended on its “transforming” leaders — those who didn’t just solve the problems handed to them, but who helped to raise society as a whole to higher levels of motivation and morality. Other business writers picked up the theme: Corporations, as Warren Bennis put it, also needed leaders who could not just “do things right” but also “do the right thing.”

But what sorts of leaders could be counted on to do the right thing? Creative, experimental risk takers, like Richard Branson? Charismatic, domineering battlers like Lee Iacocca? Ruthless pursuers of performance like Jack Welch? Dedicated “servant leaders” like Herman Miller’s Max De Pree? Quiet stoics like Darwin Smith, the CEO of Kimberly-Clark whom Jim Collins lauded in Good to Great? Or simply people whose “leadership secrets” have been collected, like Attila the Hun? Each style has had its advocates and acolytes over the years. But for all the sophistication of the experts, for all the books published on the subject, there is still no definitive consensus on the most effective style of leadership.

Indeed, the quality of individual leadership matters. In case after case, in organizations and in society at large, when the single individual at the top is replaced, everything else changes — either for the better or for the worse. But the effectiveness of leaders depends, more than is generally realized, on the context around them. Over time, the leader’s capability is shaped by the top team’s quality, and by the capabilities of the full organization. These can either provide invaluable support for the changes a leader wants to make or render those changes impossible. Hence the best leaders pay a great deal of attention to the design of the elements around them: They articulate a lucid sense of purpose, create effective leadership teams, prioritize and sequence their initiatives carefully, redesign organizational structures to make good execution easier, and, most importantly, integrate all these tactics into one coherent strategy.

One prominent example of this approach to leadership is Procter & Gamble under chief executive A.G. Lafley. In 2007, Lafley was singled out for his leadership quality by such management experts as Bennis and Noel Tichy (in their book Judgment: How Winning Leaders Make Great Calls); Harvard Business School Professor Joseph L. Bower (in his book The CEO Within: How Inside-Outsiders Are the Key to Succession Planning); Ram Charan (who is coauthoring a book with Lafley called The Game-Changer, due from Crown in April 2008); and the Academy of Management, the world’s preeminent association of business academics, which named Lafley its 2007 Executive of the Year.

As Jeffrey Sonnenfeld, the associate dean for executive programs at the Yale School of Management, notes, Lafley is becoming “almost Jack Welch–like” in influencing the executive style at other companies. No doubt P&G’s stock price — which has doubled, from US$30 to $60 per share, since Lafley took office in 2001 — helps explain this CEO’s growing mystique. But neither outsiders who write about the company nor Lafley himself attributes P&G’s success primarily to a focus on financials. Instead, they single out the combined effect of P&G’s sense of purpose, the strength of its top team, and its emphasis on improving both processes and people.

“Our job — and this is particularly true for CEOs,” said the soft-spoken CEO in his Academy of Management award acceptance speech, “is to bring to­gether the many businesses, functions, and geographies and to leverage learning, scale, and scope.” As the most critical distinctive factors in P&G’s success, he named purpose and values, goals, strategies, strengths, organizational structure and systems, innovation, leadership, and culture. He particularly emphasized the “rigorous, intentional way we approach leadership development,” including his own direct role in career planning for P&G’s top 500 people. “I review their assignment plans, assess their strengths and weaknesses, and determine where I can help them grow.”

This comprehensive approach to leadership development is deeply embedded throughout the company. When Lafley became CEO, according to the magazine of his alma mater, Hamilton College, he removed the oak-paneled executive offices on the 11th floor of P&G’s Cincinnati headquarters, lending the paintings that hung there to a local museum. He moved the divisional presidents’ offices nearer those of their staffs and converted the former executive space to an employee learning center. He did it, Lafley said, “so people understand we’re in the business of leading change.”

Other chief executives lauded for their leadership in recent years — including Jeffrey Immelt at General Electric, Jim McNerney at Boeing, and New York City Mayor Michael Bloomberg — all share with Lafley an emphasis on building a long-term capability for generating results. To be sure, these accolades aren’t always reflected in corporate stock prices; analysts tend to be justifiably skeptical of CEOs’ loftier ambitions. But there is some evidence of the financial value of inte­grated leadership. Consider Fortune magazine’s list of the “100 Best Companies to Work For,” a compendium produced by the Great Place to Work Institute in San Francisco. (Procter & Gamble, which has been on the list five out of the six years since Lafley took office, ranked number 68 in 2007.)

When our own firm, Booz Allen Hamilton, joined the list in 2005, we realized the in-depth attention to organizational design that is needed to make the cut. Companies must provide extensive quantitative and qualitative data on their workforce profiles, programs, and policies. The Institute’s researchers survey at least 400 randomly selected employees, and audit such employee-related factors as promotions and training, pay and benefit practices, communications to and from management, celebrations, and fun on the job. The criteria are weighted toward organizational structure (how companies are set up to involve and engage people), strategic direction (how compelling their vision is), and the optimism of the company’s culture.

Whether or not you agree with the ranking of any particular “Best Company,” the success rate of this group over time suggests that attention to a multifaceted, broad-based context for leadership is consistent with sustainable positive results. According to Gurnek Bains in his book Meaning, Inc. (Profile Books, 2007), annual investments in the publicly held “Best Com­panies” would have yielded, from 1994 to 2006, a return of more than 600 percent. By comparison, an investment in the Standard and Poor’s 500 would have yielded 250 percent, and the 18 companies lauded in Built to Last, the 1994 bestseller written by Jerry Porras and Jim Collins, would have yielded only 150 percent. (The high returns for the “100 Best Com­panies” have been confirmed by other research, such as one current study by economist Cullen Goenner.)

Few companies will prosper by copying P&G, or any other member of the “100 Best Companies,” directly. Great management practices are not replicable in recipe fashion. But companies can develop a design for strategic leadership. It would draw upon both long-established ideas and recent management research — emerging, for example, from the University of Southern California’s Center for Effective Organizations, where faculty members such as James O’Toole, Edward Lawler, Warren Bennis, Jay Galbraith, Chris Worley, Sue Mohrman, and Kathleen Reardon have tracked the relationship between leadership styles and corporate performance for more than 15 years.

A design for strategic leadership is an integrated group of practices that build a company’s capacity for change. To develop and maintain this capacity, four critical elements need to be integrated together: the commitment to the company’s purpose; the makeup of the top management team; the capabilities and motivation of people throughout the organization; and a sequence of focused, well-chosen strategic initiatives that can take the company forward. (See Exhibit 1.)

Four Starting PointsConventional wisdom would have it that a crisis is the most common trigger for change. A company faces bankruptcy, court proceedings, or sudden, fierce, business-destroying competition. Current strategies aren’t working. Urgent turnaround is needed. And in fact, the perceived threat of extinction is often a prelude to the dramatic entrance of a turnaround artist from the outside, such as Carlos Ghosn at Nissan in 1999, Robert Stevens “Steve” Miller at Delphi in 2005, and Robert Nardelli at Chrysler in 2007. The fate of the company often depends on how well this new heroic figure can draw upon leadership capabilities: his or her own, those of the senior leadership team, and those of people throughout the company.

In our experience, however, only about 15 percent of the companies that voice a need for change are truly in crisis. A far more common situation — involving as many as 60 percent of those companies — is a state of inconsistency. A leader recognizes that, of the half dozen or so strategic initiatives currently under way, one or more aren’t delivering results or living up to expectations. “Why aren’t we getting a better multiple?” asks the leader. “How can we improve our poor performers?” This was the condition of General Electric when Jack Welch was appointed CEO in 1981; he famously dealt with it by decreeing that every business unit would have to be number one or number two in market share in its niche; otherwise, he would “fix, sell, or close” divisions. The number-one-or-number-two criterion doesn’t apply to every company, but the general challenge is much the same: to find a prescient way to distinguish the value of activities and improve or prune the laggards.

We estimate that another 15 percent of the companies that seek advice on leadership are doing well, at least by their own criteria, but the leaders at the top want to take on new challenges. They worry that the organization will not make the leap with them, if only because the employees are too focused on executing day-to-day business. To combat this complacency, John Barth, CEO of auto components manufacturer Johnson Controls from 2002 through 2007, initiated what he called a “growth culture” at this already profitable company — moving into Asian markets, driving for more competitiveness against other component manufacturers, and expanding Johnson’s air-conditioning and heating systems and battery-manufacturing businesses into green technology enterprises.

The remaining 10 percent of the companies that seek help are recovering from a poorly designed full-scale transformation (an effort to change the entire firm’s culture, organizational structures, and leadership practices at once). Typically, the chief executive had called for a bold new direction, and 20 or more initiatives had been started, all overseen by a “turnaround leadership team” of seemingly committed executives. Some shorter-term cost reduction efforts had paid off; bankruptcy or a forced sale may have been averted. But it had soon become clear that it would take a lot more attention and effort to grow the top line than anyone had expected. The company’s leaders had thus “declared victory,” written up the preliminary results as a success, and moved back to business as usual. Comparatively few of those companies reach out for further help — they’re usually too exhausted — but some do.

If you are a leader initiating a major change or a board seeking a leader to oversee change, then those are your starting points: crisis, inconsistency, complacency, or exhaustion. How long do you have to put in place a design for strategic leadership? For an answer, consider the statistics on CEO tenure. Although chief executive terms may last anywhere from one to 20 years in large global corporations, the average tenure for the CEO of a global corporation is just under eight years, according to Booz Allen’s most recent annual study of CEO succession. This is consistent with Joseph Bower’s estimate in The CEO Within — that a chief executive has between six and 10 years to make a mark and build a legacy.

And if the company needs to reposition itself or renew its capabilities, then all those years will be needed. Harvard University professors John Kotter and James Heskett report that, in 200 corporate transformation cases they studied, the most common time span from beginning to end was five to seven years. Successful transformations — those that don’t produce a backlash, don’t exhaust the organization, and do produce most of the desired results — generally occur in waves. An overall strategy for change taking place through strategic initiatives with relatively concrete goals, each requiring two to three years, tends to provide maximum impact.

As is the case with most other comprehensive efforts to change a large system, several things need to happen at once. A logical starting point is a set of diagnostic questions for the CEO and other key leaders: How do we build and align the top management team? What few initiatives do we need to deliver fundamental change? And how can we equip the organization to develop and deploy the right capabilities to produce the results we want?

The “Why” FactorDuring its high-growth years in the early 1990s, the purpose of the computer company Dell Inc. was clear to its leaders and employees. Dell existed to reshape the personal computer hardware business in its own image through its innovations in supply chain management and real-time customization. One critical enabler of this purpose was a reputation for offering the highest-quality customer service and support. When a Dell computer broke, the company’s help desk would often say, “Send it back to us, and we’ll send you a new one.”

Around the time that Michael Dell turned over the CEO role (to then Chief Operating Officer Kevin Rollins) in 2004, the company seemed to change direction. Dell began to focus on cutting costs to beat back Asian competition. Among the casualties was the help desk; customers suddenly began having a much harder time getting their computers fixed, which was intolerable for a business dependent on mail order. In May 2007, New York State Attorney General Andrew Cuomo sued Dell for deceptive business practices and false advertising, mostly related to customer service. By that time, CEO Kevin Rollins had resigned and Michael Dell had returned to the helm.

Why did Dell lose its way? Without a strong corporate purpose, the company did not know how to set priorities. Rather than focusing on those distinctive customer-focused factors that made it the leader of its industry, the company kept cutting prices (in effect, training its customers to wait for discounts) and introducing products, such as large-screen televisions, that required a different business model. Today, Dell is seeking to regain its purpose as a company that once again can reshape and lead the personal computer industry. To accomplish this, its leaders have recognized that they must reach out to individual consumers through more diverse retail channels. And Dell is reportedly rebuilding its customer support as a key component, not just of its value proposition, but of its corporate identity.

That is the power of the “why” factor: a clear, focused explanation of a company’s purpose. Artic­ulating “why we do what we do” allows leaders to set priorities and explain the relevance of their decisions (or, as O’Toole and Lawler put it, to “frame the direction of success”). The answer attracts a higher-quality group of employees, drawn not just to making money but also to meaningful work. In their recent book, The Enthusiastic Employee (Wharton School Publishing, 2005), David Sirota, Louis A. Mischkind, and Michael Irwin Meltzer sum up the research showing the power of purpose in attracting employees, particularly those between 17 and 30 years old. A well-articulated purpose also motivates employees to go beyond “business as usual,” it helps leaders set priorities and balance short-term and long-term measures, and it gives the entire organization a sense of confidence about the future. Most of all, it sets the stage for a focused set of strategic initiatives (also known as campaigns). Not all will be successful, but all will be relevant, in some way, to the company’s ultimate success — if only as failures to learn from.

The two most powerful writers we know on the subject of purpose, Gurnek Bains (Meaning, Inc.) and Nikos Mourkogiannis (Purpose, Palgrave Macmillan, 2006), both make the same basic point: Strategic leaders don’t simply invent an organization’s purpose in a vacuum. They draw forth a purpose that resonates with the values and capabilities of its people, and with the nature of its existing business. Thus, according to Bains, the Virgin Group succeeds because it exists to continually meet fresh challenges. In 2005, when CEO Sir Richard Branson announced the formation of Virgin Galactic, with plans to offer orbital space flights to paying customers, it let his employees and customers know that they could be part of an audacious, risk-taking, history-making enterprise for the rest of their careers. Similarly, according to Mourkogiannis, BMW has always attracted both customers and employees because it embodies excellence. To be sure, it makes a handsome profit, but first and foremost it makes beautiful cars.

Purposeful InitiativesMost executives recognize that significant change takes place through action. And the familiar way to achieve this is through strategic initiatives: launching a product, changing a practice, or staking out a market position. Unfortunately, that often seems to mean “the more action, the better,” especially when each potential initiative, product launch, or improvement campaign has its own advocates within the company.

This is the path to exhaustion. All too often, the strategic initiatives lack a clear connection to the organization’s purpose; therefore, their relevance is uncertain and they generate little excitement. People comply in the sense of “checking off a box,” but the desired result is never realized.

A more effective approach to strategic initiatives starts by considering purpose. What is this company here for? To discover new things? To dominate its niche? To serve others? To operate in a globally responsible manner? Once the answer is articulated, leaders can frame a campaign: a sequence of high-priority campaigns that reinforce one another and that people throughout the enterprise feel comfortable with, even if those actions represent a dramatic shift in direction.

When Carlos Ghosn came to Nissan in 1999, the company was moribund. Ranked as the number-three auto manufacturer in its region, it was suffering from $30 billion in debt and was viewed as inefficient and sluggish on product development. Ghosn almost immediately began to articulate a purpose: The combined Nissan–Renault company would become a new kind of automobile company, a “global alliance” (as he put it) that was truly multicultural, and better positioned than any other company to bring automobiles to every part of the world. Neither Nissan nor Renault had the capabilities to achieve this purpose at the time. Ghosn set a three-part program in motion to bring Nissan to the point where it could fulfill its part.

Ghosn began the first phase, a cost-cutting strategic initiative called the Nissan Revival Plan, by announcing a set of audacious goals: Nissan would raise the ratio of operating income to sales margin to 4.5 percent and reduce consolidated debt to less than ¥700 billion (US$6 billion) by 2002. The automaker achieved those aims a year ahead of schedule. The second campaign, which started in 2002 and was called Plan 180, set new five-year goals of zero debt, a million-car sales increase, and 8 percent return on sales; Nissan achieved each within three years. By late 2007, the company had cash reserves of $165 billion, and was midway through its third initiative, christened Value Up, with the goal of achieving 20 percent return on invested capital, in part through renewed emphasis on innovative products. Each campaign has helped build the capabilities needed for the next one. And although Value Up is behind schedule, the complexity of the challenges facing Ghosn’s alliance has increased, and his success is uncertain, the revival remains the only successful automobile company turnaround since the 1980s.

As the Nissan story demonstrates, effective strategic leadership requires whittling down the list of possible strategic initiatives to a manageable set; perhaps three successive waves of activity, with four to six projects at one time, each designed to build the capabilities needed for the next wave. Before engineering a million-car sales increase, for example, Nissan needed not just the cash flow to pay for expansion, but the capabilities that reducing debt and raising operating income had pro­vided. These initiatives are also deliberately experimental. When some of them start to fail (as some inevitably will), the organization and leadership can adjust and learn from their mistakes.

Balanced Top TeamsMost of the executives we know are satisfied with the quality of their top management team; after all, these are generally handpicked colleagues with a great deal of capability. And therein lies the problem, for human judgment about close colleagues is notoriously vulnerable. “No matter how hard-nosed some leaders may appear,” write Tichy and Bennis in Judgment, “they have feelings about other people. They become attached to them, or maybe detest them, to degrees that hardly ever apply when they are considering strategic business plans. And it’s these feelings that can keep them from making good, objective calls [about the leadership team].”

As Max Weston and Andra Brooks of Panthea Strategic Leadership Advisors have noted, many CEOs (consciously or not) handpick people they feel comfortable with to sit on critical leadership teams. They recognize the need for technical and functional expertise; the CIO must know about systems and the CMO must have marketing experience. But CEOs do not typically assemble people who are diverse enough in their personalities and backgrounds to play the complementary roles necessary in a business context. Nor do they invest much in explicitly building the trust and accountability that team members will need to work closely together.

Those companies that explicitly balance talents and temperaments tend to use a variety of methods. The Myers-Briggs personality inventory is the best-known; some companies that use this test assign people to teams so that strong and weak characteristics are balanced. Panthea’s TIME model of leadership skills (which suggests that different leaders are better at either thinking, inspiring, mobilizing, or empowering) borrows from the Andrews Munro “business challenges” framework, which identifies eight management styles: the visionary, explorer, builder, lobbyist, integrator, regulator, troubleshooter, and architect. Organizational systems consultant David Kantor proposes another set of categories, in which, for example, some people are better at moving (initiating new actions), and others prefer the roles of opposer, follower, and bystander. To Kantor, a team is truly healthy when people can easily move among these roles, raising challenges one day as an opposer, being an enthusiastic follower or mover the next day, and stepping back to offer detached commentary as a bystander the following week.

Whatever the details and categories may be, some explicit design for team composition can help prevent teams from being either stuck in recurring conflicts or prone to groupthink. At Panthea, this design includes a diagnostic of team members (see Exhibit 2) and an effort to add people who can fill in the personality gaps.

With the requisite diversity of thinking in place, the ability to plan and act together requires in-depth rehearsal, over time, often with experts from outside companies who can help provide perspective. That’s why effective leadership teams are often proficient at strategic exercises, where they role-play or conduct wargames involving typical business problems, experimenting with various strategies in a fictional environment before trying them in the real world. Meanwhile, the CEO should be planning his or her succession, using the senior team as a crucible for developing others who will be capable of filling the top position in the future.

Is it worth the trouble? One organization famous for this kind of practice is India’s Tata Group, a global conglomerate made up of 100 companies, 300 subsidiaries, and 40 diverse business units. Tata’s broad range of business lines includes automobile manufacturing, chemicals, insurance, electric power generation, publishing, tea, and engineering services, which all fit together (as Gurnek Bains notes) in achieving the common core purpose of building “what India needs next.” Chairman and CEO Ratan Tata is known for selecting and fostering internal boards for the group’s many subsidiaries. The boards are not caretakers; they are ex­pected to make strategic decisions, and their leaders coalesce to coordinate major decisions for the Tata Group as a whole. The boards are also expected to create managerial bonds among Tata’s businesses while maintaining their independence.

Organizational CapabilitiesThrough their actions, leaders have a great deal of influence over an organization’s culture, but very little of that influence is direct. They can’t make a team more skilled or committed through directives alone; requirements mean very little if they cannot be translated into specific behavior changes. We’ve learned this at Booz Allen through our own work on building organizational capabilities for change, and in particular through the body of practice known as organizational DNA. By changing the reporting relationships and structures, the networks through which people exchange information, the motivators and incentives, and the decision rights in an organization, organizations can shift their capabilities and motivate people to act in sync with the organization’s purpose.

These four “building blocks” (as organizational DNA theorists Gary Neilson and Bruce Pasternack call them) are not the only factors that leaders can use to influence organizations. Indeed, management literature is rife with levers for change, ranging from new information technology to new human resources practices. They all have one thing in common: Unless they are explicitly aligned with the purpose and strategy of a company, they will tend to forestall and undermine the desired strategic direction.

Consider the short time frame of executive assignments in many American and European companies. Brand managers in consumer products and pharmaceutical companies, for example, are accustomed to rotating positions every 18 to 24 months. This means they often escape dealing with the consequences of their decisions, and they are unwilling to make investments (such as in developing innovative new products) that will outlast their tenure. But companies that try to counter this by making assignments last longer, as Japanese companies do, risk losing talented people who assume, “I’m a high-potential person, and therefore I should be moving.”

To deal with this dilemma, a series of interventions may be needed, depending on the purpose of the company and the nature of its industry. For example, if the company is focused on what Nikos Mourkogiannis calls “discovery” (the continual search for new ways to do business and learn about the world), it may be possible to keep a brand manager in place by building the capacity for continual invention. This might mean using informal networks — arranging regular calls and meetings, for example, between marketing and R&D. It might mean giving people more opportunities to take courses or collaborate with others outside the company. A company interested in altruistic goals, like service, could offer very different incentives (such as a more flexible schedule that allowed employees more control over their time) or more formal links between marketing and customer service.

The Right QuestionsAn immense body of literature already exists on each of the four areas highlighted in this article: purpose, the top management team, organizational capabilities, and strategic initiatives. But research in the strategic leadership field is so fragmented, unreliable, and obscure that many designers of strategic leadership initiatives base their approach on only a small fraction of the knowledge that exists.

That’s a shame, because the broader your awareness of work in the field, the more effective your design can be. It’s helpful to know, for example, that (as David Sirota and his colleagues report from their research on The Enthusiastic Employee) deliberate efforts to accentuate fairness, camaraderie, and recognition lead to improved workplace productivity. Or that (as organizational researcher Elliott Jaques proposed) organizational hierarchies work well when structured to fit with employees’ cognitive capacity. Or that (as neuroscientist Jeffrey Schwartz and executive coach David Rock have written) successful organizational change initiatives require day-to-day practices that focus people’s attention in a habitual manner.

Because every organization is different, diagnosing your situation and culture is critical. The questions will vary with your company’s situation. (See Exhibit 3.) The process will involve your most talented and committed senior executives. And it may take several months of concerted effort before you all understand each other and feel comfortable with the company’s purpose and in defining the right set of initiatives to pursue. But sometimes you have to go slow to go fast. Extra time and care in bringing people to a common understanding at the beginning means far less time lost in false starts and retrenchment later.

This approach to designing strategic leadership will not appeal to every executive. Indeed, as companies experience increasingly intensive pressure from institutional investors, regulators, private equity firms, and hedge funds, it sometimes feels as though the well-developed long-term leader is an endangered species. (“Just get a CEO who can put a strategy in place, push people to execute it, and fire those who don’t!”) But a growing group of CEOs, and their boards, recognize that the purely utilitarian approach is not sus­tainable. It won’t retain talent, it won’t build competitive advantage, and, in the end, it will create only acquisition targets.

A design for strategic leadership is the alternative. It is not a new approach; it is simply the practiced, considered strategy for change that the best and most long-lived companies have always used. There is no real mystery to it, but it takes the kind of commitment, dedication, and respect that truly makes a company a greatplace to work.

Jeffrey Immelt’s Three-Part Story Lineby Noel Tichy and Warren Bennis

When Jack Welch handed over the reins of General Electric to Jeffrey Immelt in September 2001, Immelt knew that he would soon be making some changes. During Welch’s 20-year run as CEO, GE had dramatically outperformed the economy, creating over US$400 billion of new market value. Still, Immelt knew that if he limited himself to tinkering around the edges and making GE’s current business model run better, the company would not retain its preeminence for long.

Immelt officially became the chairman and CEO of General Electric on September 7, 2001. Four days later, terrorists attacked the United States. In only a few hours, just about every aspect of, and every assumption about, the future direction of the world’s economies and of geopolitical life was called into question.

At such times, a leader’s capacity for laying out the future story of his or her organization is vitally important. It provides a platform for making the key people, strategy, and crisis judgments. To be effective, a leader’s “story line” (as we call it) has to answer three questions about the organization and its potential: Where are we now? Where are we going? How will we get there?

To Immelt, the world in which GE had to operate after 2001 would be marked by slower growth and more volatility. “There’s not going to be a rising tide to lift all ships universally,” he said. “There are going to be businesses that win, and businesses that lose; countries that win and countries that lose.” To attract and motivate good people in this environment, Immelt believed, GE needed to become more humane. In fact, society and government would demand better corporate behavior. “Just being great isn’t enough any more. Companies and people have to be both great and good to be successful in the future.”

Based on this story line, Immelt made judgments about what businesses GE should be in and how it would conduct those businesses. Those judgments included making sure that his own pay package was moderate compared to that of other CEOs and that all his incentives were tied to GE performance.

The next element in his story line was to figure out how GE could operate most successfully in this changed world. The answer he arrived at was that GE could best generate organic growth by using its strong research and technology base to de­velop new markets. Some of the markets offering huge opportunities would be developing countries that needed to build infrastructure for power, water, energy, and transportation. In the more advanced economies, the best opportunities would be in un­served or underserved markets: health care, energy saving and production, and environmentally friendly products. This assessment informed strategic decisions that included buyingAm­ersham, a leading company in the diagnostic imaging and life sci­ences markets, and increasing in­vestment in wind-generation and ad­vanced technology for the oil and gas industry.

The third element of Immelt’s story line (“How will we get there?”) describes how GE will go about succeeding in these markets. Because he saw that global warming and the need for sustainable energy were serious concerns, Immelt made the judgment that GE would come up with a strong response. In 2005, GE launched its Ecomagination initiative, a multidisciplinary campaign to apply GE technology to drive energy efficiency and improve environmental performance. He also provided much greater transparency to the investor community than GE had in the past. He proactively set standards for other companies in the post-Enron, post-Tyco, Sarbanes-Oxley world. He is continuously pushing the boundaries of how transparent GE can become without giving away too much information to its competitors.

Immelt also created a growth process for GE. This included, for example, hosting “customer dreaming sessions” to drive innovation. These are one- to two-day sessions held at the company’s John F. Welch Leadership Development Center at Crotonville, N.Y., with the CEOs and key leaders from the GE businesses. His job as a leader is to create the platform for other GE leaders to make good strategic judgments.

Jeff Immelt works closely with the CEOs of the GE businesses on their strategy, budgets, and succession planning, and on their involvement in corporate initiatives such as lean Six Sigma quality programs, growth platforms, leadership development, and technology transfer. He personally teaches at Crotonville every few weeks. He visits GE’s Global Research Center as often as four or five times a year. He gathers the heads of the business together with key corporate staff four times a year for multiday workshops at Crotonville. Immelt also goes out to each business unit to do succession planning reviews, all-day strategy reviews, and operating plan reviews. Even though, as CEO, Immelt makes the final call on the big items, judgment at GE is a team sport.

Noel Tichy (editors@strategy-business.com) is a professor at the University of Michigan’s Ross School of Business and the author of The Cycle of Leadership: How Great Leaders Teach Their Com­panies to Win (with Nancy Cardwell, HarperCollins, 2002) and many other business bestsellers.

Warren Bennis (editors@strategy-business.com) is distinguished professor of business ad­ministration at the University of Southern California, and the author of Reinventing Leadership: Strategies to Empower the Organization (with Robert Townsend, William Morrow, 1995) and many other business bestsellers. This article is adapted from Judgment: How Winning Leaders Make Great Calls, by Noel Tichy and Warren Bennis (Portfolio, 2007).

Author Profile: Steven Wheeler (wheeler_steven@bah.com) is a senior vice president with Booz Allen Hamilton based in Cleveland, Ohio. He leads the firm’s work focused on strategic leadership and has served multiple industries with a focus on consumer packaged goods and durables.

Walter McFarland (mcfarland_walter@bah.com) is a vice president with Booz Allen based in McLean, Va. He specializes in maximizing human performance for public- and private-sector clients, with extensive experience in human capital and learning systems and leadership development.Art Kleiner (kleiner_art@strategy- business.com) is editor-in-chief of strategy+business. A new edition of his 1996 book on the history of corporate change, The Age of Heretics, will be published by Wiley Books in 2008.Also contributing to this article were Adrienne Crowther, director of Booz Allen’s work in strategic leadership; s+b Contributing Editor Ann Graham; Max Weston, a senior partner and founder of Panthea Strategic Leadership Advisors; and Andra Brooks, a partner with Panthea.

Lessons From an Earthquake For Japan's Junkudo

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Early on the morning of Jan. 17, 1995, Yatsutaka Kudo, president and owner of the Junkudo Co. bookstore chain, was jolted awake by the earthquake that devastated the western Japanese city of Kobe and killed more than 6,000 people. He rushed through the debris to get to Kobe's three Junkudo stores, known for the breadth of academic titles they carried, only to find that the first two stores he had opened in the city had been destroyed.

Undaunted, he vowed to reopen just two weeks later. "It just occurred to me. I didn't think much about that decision," Mr. Kudo ...